Data from the US Mortgage Bankers Association for the week ending May 30 shows a 3.9% drop in mortgage applications, compared to a smaller 1.2% decline the week before. Both home purchases and refinancing saw reductions, impacting the overall market. The market index fell to 226.4 from 235.7, while the purchase index dropped from 162.1 to 155.0. The refinance index also decreased from 634.1 to 611.8, reflecting less interest in refinancing. The average 30-year mortgage rate slightly fell to 6.92% from 6.98% the previous week. These high rates continue to challenge the mortgage market. This week’s report showed a more significant drop in mortgage activity compared to the week prior. Homebuyers and current homeowners are hesitant in a high borrowing environment. Both purchase and refinance volumes decreased, and although the change in the average 30-year mortgage rate was slight—down from 6.98% to 6.92%—it wasn’t enough to increase demand. The overall market index is now at its lowest level in nearly a month, highlighting how sensitive the housing financing market is to rates. With refinancing volume falling further into the 600s, it indicates that homeowners lack motivation to change their existing mortgages. Many likely secured lower rates in 2020 or 2021. The decrease in activity on both sides of the mortgage market shows a rigid demand structure. Rates are too high to attract new buyers, yet not high enough to change sentiment significantly since the adjustments have been small. This results in a stable environment for fixed-income assets, reflecting stagnation rather than sudden changes. Last week, Powell mentioned that inflation seems to be declining slowly, but the labor market remains strong. This makes it harder to predict the Fed’s next steps in the short term. While short rates may hold steady, long yields could shift due to changing inflation expectations instead of tighter monetary policy. As such, we don’t expect significant changes in rate expectations based solely on current mortgage trends. However, the reluctance of borrowers to return to the market could limit upward pressure on yields from consumer-driven growth. Fewer applications can slow housing turnover, potentially affecting broader consumer credit metrics in the medium term. The 10-year bond showed only a slight decrease alongside this soft report, indicating that bond markets are looking beyond housing data, focusing instead on inflation and payroll growth as the next catalysts. The muted response in treasuries suggests that expectations for the Fed’s position haven’t changed significantly, implying a stable front-end. In the next few weeks, it would be wise to monitor new inflation data rather than past housing figures. While the drop in applications is notable, it lacks power without strong confirmation from broader price pressures. We do not expect the mortgage market alone to shift sentiment in rate markets. Current conditions favor premium capture and carry strategies over position-driven bets on direction—at least for now. Sensitivity is particularly high at the long end, especially if inflation surprises upward. In such cases, yields could spike quickly, activating duration stops in leveraged portfolios. Being prepared means understanding where the risks lie and managing exposure accordingly. These figures provide insight but not definitive signals. The real indication will come when price data either confirms or contradicts this weakened credit appetite.

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